IF3 Certificate in Insurance Unit 3 - Insurance underwriting process - Based on the 2020 syllabus examined from 1 January 2020 until 31 December ...
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Examination Guide IF3 Certificate in Insurance Unit 3 – Insurance underwriting process Based on the 2020 syllabus examined from 1 January 2020 until 31 December 2020
Examination Guide Unit 3 – Insurance underwriting process Based on the 2020 syllabus examined from 1 January 2020 until 31 December 2020 Contents Introduction to Examination Guide 3 IF3 Syllabus 6 Specimen Examination 10 Specimen Examination Answers and Learning Outcomes Covered 23 Published in October 2019 by: The Chartered Insurance Institute 42-48 High Road, South Woodford, London E18 2JP Telephone: 020 8989 8464 Fax: 020 8530 3052 Email: customer.serv@cii.co.uk Copyright © 2019 The Chartered Insurance Institute. All rights reserved. IF3 Examination Guide 2020 2
Examination Guide Unit 3 – Insurance underwriting process Based on the 2020 syllabus examined from 1 January 2020 until 31 December 2020 Introduction This examination guide has been produced by the Examinations Department at the Chartered Insurance Institute to assist students in their preparation for the IF3 examination. It contains a specimen examination with answer key. Ideally, students should have completed the majority of their studies before attempting the specimen examination. Students should allow themselves two hours to complete the examination. They should then review their performance to identify areas of weakness on which to concentrate the remainder of their study time. Although the specimen examination in this guide is typical of an IF3 examination, it should be noted that it is not possible to test every single aspect of the syllabus in any one particular examination. To prepare properly for the examination, candidates should make full use of the tuition options available and read as widely as possible to ensure that the whole syllabus has been covered. They should also endeavour to keep as up-to-date as possible with developments in the industry by reading the periodicals listed in the IF3 reading list, which is located on the syllabus in this examination guide and on the CII website at www.cii.co.uk. Background Information CII examination questions undergo a rigorous writing and editing process before reaching an examination. The questions are written to strict guidelines by practitioners with relevant technical knowledge and experience. Questions are very carefully worded to ensure that all the information required to answer the question is provided in a clear and concise manner. They are then edited by an independent panel of experienced practitioners who have been specifically trained to ensure that questions are technically correct, clear and unambiguous. As a final check, each examination is scrutinised by the Senior Examiner and a CII assessment expert. Occasionally a question will require amendment after the examination guide is first published. In such an event, the revised question will be published on the CII website: 1) Visit www.cii.co.uk/learning/qualifications/unit-insurance-underwriting-process-if3/ 2) Select ‘exam guide update’ on the right-hand side of the page Candidates should also refer here for the latest information on changes to law and practice and when they will be examined. IF3 Examination Guide 2020 3
Examination Guide
Syllabus
The IF3 syllabus is published on the CII website at www.cii.co.uk. Candidates should note that the
examination is based on the syllabus, rather than on any particular tuition material. Of course, the
tuition material will provide the vast majority of the information required to perform well in the
examination, but the CII recommends that students consult other reference materials to supplement
their studies.
Skill Specification
The skill level tested in each examination question is determined by the syllabus. Each learning
outcome specifies the level of skill required of candidates and thus the level at which candidates may
be tested. Learning outcomes for IF3 begin with understand.
Understand To answer questions based on understanding, the candidate must be able to link
pieces of information together in cause-and-effect relationships. Typically
questions may ask ‘Why’. Questions set on an understand learning outcome can
test either knowledge or understanding or both.
Examination Information
The method of assessment for the IF3 examination is 75 multiple choice questions (MCQs). 2 hours are
allowed for this examination.
The IF3 syllabus provided in this examination guide will be examined from 1 January 2020 until
31 December 2020.
Candidates will be examined on the basis of English law and practice unless otherwise stated.
The general rule is that legislative and industry changes will not be examined earlier than 3 months
after they come into effect.
A multiple choice question consists of a problem followed by four options, labelled A, B, C and D, from
which the candidate is asked to choose the correct response. Each question will contain only one
correct response to the problem posed.
One mark is awarded for each correct response identified by the candidate. No mark is awarded if the
candidate either chooses an incorrect response, chooses more than one response or fails to choose any
response. No marks are deducted for candidates choosing an incorrect response.
While no questions involve complex calculations, candidates are permitted to use calculators during the
examination. If you bring a calculator into the examination room, it must be a silent battery or
solar-powered non-programmable calculator. The use of electronic equipment capable of being
programmed to hold alphabetic or numerical data and/or formulae is prohibited. You may use a
financial or scientific calculator, provided it meets these requirements.
Candidates are permitted to make rough notes. Candidates are not permitted, under any
circumstances, to remove any papers relating to the examination from the examination room.
IF3 Examination Guide 2020 4Examination Guide Examination Technique: Multiple Choice Questions The best approach to multiple choice examinations is to work methodically through the questions. The questions are worded very carefully to ensure that all the information required is presented in a concise and clear manner. It cannot be emphasised too strongly that understanding the precise meaning of the question is vital. If candidates miss a crucial point when reading the question it could result in choosing the wrong option. Candidates should read carefully through the question and all the options before attempting to answer. Candidates should pay particular attention to any words in the question which are emphasised in bold type, for example, maximum, minimum, main, most, normally and usually. Negative wording is further emphasised by the use of capital letters, for example NOT, CANNOT. Candidates should not spend too much time on any one question. If they cannot make up their mind, they should leave the question and come back to it later. When all of the questions have been answered, it is prudent to use any remaining time to go through each question again, carefully, to double-check that nothing has been missed. Altering just one incorrect response to a correct response could make the difference between passing and failing. After the Examination Rigorous checks are made to ensure the correctness of the results issued. A pre-defined quota of passes to be awarded does not exist. If all candidates achieve a score of at least the pass mark, then all candidates will be awarded a pass grade. Individual feedback on the candidate’s examination performance is automatically provided and will indicate the result achieved and, for each syllabus learning outcome, the percentage of questions in the examination that were answered correctly. IF3 Examination Guide 2020 5
Insurance underwriting
process
Objective
To provide knowledge and understanding of the role of underwriting including
identification, assessment and acceptance of risk, rating and relevant financial factors.
Summary of learning outcomes Number of
questions in the
examination*
1. Understand the material circumstances relating to the insurance 5
underwriting process
2. Understand underwriting procedures relating to the insurance underwriting 15
process
3. Understand insurance policies in relation to the insurance underwriting 10
process
4. Understand renewals and cancellation in relation to the insurance 3
underwriting process
5. Understand personal insurances in relation to the insurance underwriting 3
process
6. Understand commercial insurances in relation to the insurance underwriting 3
process
7. Understand the main ‘support’ type insurance services available 2
8. Understand underwriting considerations in relation to the insurance 13
underwriting process
9. Understand the principles and practices of pricing 10
10. Understand pricing factors within the context of the insurance underwriting
5
process
11. Understand managing exposure within the context of the insurance 6
underwriting process
*The test specification has an in-built element of flexibility. It is designed to be used as a guide for study and is not a
statement of actual number of questions that will appear in every exam. However, the number of questions testing each
learning outcome will generally be within the range plus or minus 2 of the number indicated.
Important notes
• Method of assessment: 75 multiple choice questions (MCQs). 2 hours are allowed for this examination.
• This syllabus will be examined from 1 January 2020 until 31 December 2020.
• Candidates will be examined on the basis of English law and practice unless otherwise stated.
• Candidates should refer to the CII website for the latest information on changes to law and practice
and when they will be examined:
1. Visit www.cii.co.uk/learning/qualifications/unit-insurance-underwriting-process-if3/
2. Select qualification update on the right hand side of the page.
Published October 2019 IF3
Copyright © 2019 The Chartered Insurance Institute. All rights reserved.1. Understand the material 5. Understand personal insurances in
circumstances relating to the relation to the insurance
insurance underwriting process underwriting process
1.1 Explain why an underwriter needs to be 5.1 Describe the basic features and typical
aware of material circumstances in policy cover of motor insurance, health
assessing a risk insurance, household insurance, travel
1.2 Explain the concept of the duty of fair insurance and extended warranties
presentation, to whom it applies and how
the duty may be modified 6. Understand commercial insurances
1.3 Define the words peril and hazard as used in relation to the insurance
in the insurance industry and the underwriting process
relationship between them 6.1 Describe the basic features and typical
1.4 Explain the significance of moral and policy cover of property insurance,
physical hazard for underwriters and how pecuniary insurance, cyber insurance and
they are manifested liability insurance
1.5 Describe the methods used by underwriters
to obtain material information 7. Understand the main ‘support’ type
insurance services available
2. Understand underwriting 7.1 Describe the basic features of additional
procedures relating to the insurance ‘support’ type insurance services available
underwriting process with specific reference to help lines,
authorised repairers and suppliers, risk
2.1 Describe the general and specific questions control/advice and uninsured loss recovery
asked of proposers services
2.2 Describe the procedure relating to
quotations 8. Understand underwriting
2.3 Explain the methods by which underwriters considerations in relation to the
gather material information and their legal insurance underwriting process
significance
8.1 Describe the key underwriting criteria for
2.4 Describe the different ways in which motor insurance, health insurance and
premiums are calculated personal insurances
2.5 Explain the legal significance of procedures 8.2 Describe the key underwriting criteria for
relating to the issue of cover notes, policies commercial property insurance, including
and certificates of insurance fire and special perils, theft insurance, glass
2.6 Describe the relevance of premium insurance and money insurance
payment for valid cover 8.3 Describe the key underwriting criteria for
2.7 Describe the methods used by insurers to pecuniary insurances, including legal
collect premiums including instalment expense insurance and business
facilities interruption insurance
2.8 Describe the features of Insurance Premium 8.4 Describe the key underwriting criteria for
Tax liability insurance, including employers’
liability, public liability, pollution liability,
3. Understand insurance policies in products liability and professional
relation to the insurance indemnity
underwriting process 8.5 Describe the key underwriting criteria for
extended warranties
3.1 Describe the structure, functions and
contents of a policy form, including the 8.6 Describe the procedures commonly used to
policy schedule discourage individuals from making
fraudulent claims
3.2 Explain the meaning and significance of
common policy exceptions and conditions 8.7 Describe the procedures commonly used to
including terrorism cover detect fraudulent claims
3.3 Explain how excesses, deductibles and 8.8 Explain the consequences of fraudulent
franchises are used claims for the insurer, their insureds and
the fraudulent claimant
3.4 Explain the distinction between warranties,
conditions and representations 8.9 Explain the effect on insurance of the
current Disability Discrimination/Equality
4. Understand renewals and Act 2010 and Data Protection legislation
cancellation in relation to the
insurance underwriting process
4.1 Describe the legal significance of
procedures relating to renewals
4.2 Explain how cancellation clauses operate
Published October 2019 2 of 4
Copyright © 2019 The Chartered Insurance Institute. All rights reserved.9. Understand the principles and Reading list
practices of pricing
9.1 Describe the sources, availability and types The following list provides details of further
of data essential to the underwriting reading which may assist you with your studies.
process Note: The examination will test the syllabus
9.2 Explain the importance of claims alone.
information on underwriting terms/
premium rates The reading list is provided for guidance only
and is not in itself the subject of the
9.3 Explain the nature of risk in terms of examination.
frequency and severity of claims
9.4 Explain the significance of the claims loss The resources listed here will help you keep up-
ratio on premiums/acceptance of risk to-date with developments and provide a wider
coverage of syllabus topics.
9.5 Explain the distinction between
underwriting year, policy year, accounting CII/PFS members can access most of the
year and calendar year additional study materials below via the
Knowledge Services webpage at https://
10. Understand pricing factors within www.cii.co.uk/knowledge-services.
the context of the insurance New resources are added frequently - for
underwriting process information about obtaining a copy of an article
10.1 Define risk premium and its key features or book chapter, book loans, or help finding
resources , please go to https://www.cii.co.uk/
10.2 Describe the reporting factors of expenses,
knowledge-services or email
return on capital, investment income, tax
knowledge@cii.co.uk.
and intermediary remuneration
11. Understand managing exposure CII study texts
within the context of the insurance Insurance underwriting process. London: CII.
underwriting process Study text IF3.
11.1 Describe the basic factors influencing the Books (and ebooks)
market cycle Bird’s modern insurance law. 10th ed. John Birds.
11.2 Describe the principles of risk Sweet and Maxwell, 2016.
accumulation
Insurance theory and practice. Rob Thoyts.
11.3 Describe the basic reinsurance Routledge, 2010.*
considerations including the types of
reinsurance ‘Insurance intermediaries: underwriting agents’ in
Colinvaux’s law of insurance. 11th ed. Prof. Robert
Merkin. London: Sweet & Maxwell, 2016.
Insurance law in the United Kingdom. 3rd ed. John
Birds. The Netherlands: Kluwer Law International,
2015.
Pricing in general insurance. Pietro Parodi. CRC
Press, 2015.*
Published October 2019 3 of 4
Copyright © 2019 The Chartered Insurance Institute. All rights reserved.Factfiles and other online resources Exam technique/study skills
CII fact files are concise, easy to digest but There are many modestly priced guides available
technically dense resources designed to enrich the in bookshops. You should choose one which suits
knowledge of members. Written by subject your requirements.
experts and practitioners, the fact files cover key
industry topics as well as less familiar or specialist
areas of general insurance, life, and pensions and
financial services, with information drawn together
in a way not readily available elsewhere. Available
online via www.cii.co.uk/ciifactfiles (CII/PFS
members only).
The Insurance Institute of London (IIL) podcast
lecture series features leading industry figures and
subject experts speaking on current issues and
trends impacting insurance and financial services.
Available online at https://www.cii.co.uk/
insurance-institute-of-london/ (CII/PFS members
only).
• Recent developments in general insurance
underwriting. Massimo Vascotto.
• Principles and trends in general insurance
underwriting. Massimo Vascotto.
• Recent developments to Solvency II. Brad
Baker.
• The regulatory framework. Simon Collins.
Additional articles and technical bulletins are
available under the Underwriting section of the
website at www.cii.co.uk/knowledge/
underwriting.
Periodicals
The Journal. London: CII. Six issues a year. Archive
available online at https://www.cii.co.uk/search-
results?q=journal (CII/PFS members only).
Post magazine. London: Incisive Financial
Publishing. Monthly. Contents searchable online at
www.postonline.co.uk.
Reference materials
Concise encyclopedia of insurance terms.
Laurence S. Silver, et al. New York: Routledge,
2010.*
Dictionary of insurance. C Bennett. 2nd ed.
London: Pearson Education, 2004.
The insurance manual. Stourbridge, West
Midlands: Insurance Publishing & Printing Co.
Looseleaf, updated.
The insurance manual. Sadler, John. Stourbridge,
Worcs: Insurance Publishing & Printing Co.
Looseleaf updated annually.
* Also available as an eBook through Discovery via
www.cii.co.uk/discovery (CII/PFS members only).
Examination guide
If you have a current study text enrolment, the
current examination guide is included and is
accessible via Revisionmate
(www.revisionmate.com). Details of how to access
Revisionmate are on the first page of your study
text.
It is recommended that you only study from the
most recent version of the examination guide.
Published October 2019 4 of 4
Copyright © 2019 The Chartered Insurance Institute. All rights reserved.Examination Guide 1. A peril can be defined as A. a combination of hazards. B. something which gives rise to a loss. C. something which influences the outcome of a loss. D. the subject matter of the insurance. 2. In order to confirm the material circumstances relating to a complicated commercial insurance risk, the underwriter will enlist the services of A. an actuary. B. a compliance officer. C. a loss adjuster. D. a risk surveyor. 3. Why are material circumstances important to an insurer? A. Declaration of material circumstances makes the contract binding. B. Material circumstances are the sole basis of the premium calculation. C. Material circumstances determine which perils are covered. D. Material circumstances may influence the insurer’s judgement. 4. Maurice submits a motor insurance proposal form to an insurer for a quotation. In the proposal form, he discloses three previous convictions for motoring offences; two for speeding and one for reckless driving. In terms of hazard, these convictions indicate that Maurice is a A. good moral hazard. B. good physical hazard. C. poor moral hazard. D. poor physical hazard. 5. When applying for household contents insurance, why might the address of the property be particularly relevant? A. The address is likely to form part of the rating process. B. The insurer may wish to check the electoral register. C. The property may be close to the insurer’s branch office. D. The property may be subject to a mortgage. 6. Janie has completed a household insurance proposal form to insure the property she has just purchased. In respect of the insurance contract, apart from Janie, who else has a duty of disclosure? A. The estate agent. B. The insurer. C. The mortgage lender. D. The solicitor. IF3 Examination Guide 2020 10
Examination Guide
7. An employers’ liability insurance policy is rated at £2.50% on declared wages of £100,000. What is
the annual premium for the policy before the application of Insurance Premium Tax?
A. £250
B. £2,500
C. £25,000
D. £250,000
8. An insurer provides Anna with a motor insurance quotation which states that it is valid for 14 days.
When is the latest that Anna can accept the quotation?
A. During the 14-day period only.
B. After the 14-day period only.
C. After the 14-day period, for as long as the material circumstances remain unchanged.
D. After the 14-day period, until the quotation is specifically withdrawn by the insurer.
9. The declaration on a proposal form states that
A. all disputes in respect of cover will be referred to mediation.
B. the information provided is correct to the best of the proposer’s knowledge and belief.
C. the proposer and the insurer are forming a contract for cover in return for a premium.
D. the proposer has an insurable interest in the property to be insured.
10. Under which class of insurance would an insurer ask the proposer for her annual gross profit?
A. Business interruption insurance.
B. Employers’ liability insurance.
C. Money insurance.
D. Theft insurance.
11. Insurance Premium Tax applies to most general insurances when the insured risk is located
A. in the UK, excluding Northern Ireland.
B. anywhere in the UK, excluding the Channel Islands and the Isle of Man.
C. anywhere in the EU.
D. anywhere in the world.
12. Insurance premium payment, or a promise to pay the insurance premium, forms which part of an
insurance contract?
A. The acceptance made by the insured.
B. The agreement made by the insured.
C. The consideration made by the insured.
D. The offer made by the insured.
IF3 Examination Guide 2020 11Examination Guide
13. Luke has arranged a household contents insurance policy with a direct insurer and paid the
premium, but has NOT received the policy documentation. In the event of a claim, what is Luke’s
legal position?
A. A copy of the proposal form will be required before the claim will be considered.
B. He cannot make a claim without producing the policy documentation.
C. Proof of premium payment will be required.
D. The claim will be met subject to the usual claims processes.
14. When requesting a quotation for standard motor insurance, an individual will usually be asked for
A. a copy of his driving licence.
B. a copy of the log book.
C. his previous claims history.
D. proof of the vehicle’s value.
15. An insurer provides a quotation for motor insurance, which is valid for 14 days, on a vehicle with a
1.4 litre engine. On day 10, the proposer changes the vehicle to one with a 1.6 litre engine and
accepts the original quotation the following day. What is the insurer’s legal position?
A. The insurer is bound to honour the original quotation.
B. The insurer is bound to honour the original quotation, but may charge an additional premium.
C. The insurer is not bound to honour the original quotation, unless the proposer submits a new
proposal form.
D. The insurer is not bound to honour the original quotation.
16. Which document forms the legal basis of a motor insurance contract?
A. The certificate of insurance.
B. The policy.
C. The proposal form.
D. The quotation.
17. An insurer calculates household insurance premiums on the basis of 2% for the initial £100,000 of
the sum insured and £1.30 per mille for any additional sum insured above £100,000. Excluding
Insurance Premium Tax, what will be the premium for a sum insured of £150,000?
A. £2,065
B. £2,650
C. £4,950
D. £6,700
18. If an insured is allowed to pay his insurance policy premium by instalments, what is the method
that is normally used by an insurer to collect the agreed premium?
A. Direct debit.
B. Postdated cheques.
C. Regular credit card payments.
D. Standing order.
IF3 Examination Guide 2020 12Examination Guide
19. When calculating the premium for a large manufacturer’s products liability insurance policy, which
factor is most relevant?
A. The number of employees.
B. The sum insured.
C. The turnover.
D. The wage roll.
20. Which part of an insurance policy contains a detailed account of the extent of cover?
A. The heading.
B. The operative clause.
C. The recital clause.
D. The schedule.
21. Under a general insurance policy, why are war and its consequences excluded?
A. It is beyond the capacity of an individual insurer.
B. It is considered to be a speculative risk.
C. It is considered to be the responsibility of the State.
D. It would be against public policy to cover it.
22. A clothes manufacturer has a theft insurance policy which contains a requirement from the insurer
that the manufacturer will keep a security guard at the premises from 6pm to 6am, 7 days a week.
This undertaking is known as
A. a condition precedent to the contract.
B. an express warranty.
C. an implied warranty.
D. a representation.
23. A company obtains a quotation for engineering insurance which states that cover is subject to a
deductible of £50,000. This means that
A. a deposit premium of £50,000 is required.
B. any claim over £50,000 would be paid in full.
C. all claims are subject to a maximum payment of £50,000.
D. the company would be liable for the first £50,000 of any claim.
24. An exclusion that applies to only part of an insurance policy is known as a
A. general exception.
B. market exception.
C. market specific exception.
D. specific exception.
IF3 Examination Guide 2020 13Examination Guide
25. What policy condition allows the insurer to take over and deal with the recovery of monies from a
negligent third party, prior to the settlement of any claim, in the name of the policyholder?
A. Cancellation.
B. Contribution.
C. Notification.
D. Subrogation.
26. Samantha has a personal accident insurance policy that provides a temporary total disablement
benefit of £200 per week. The policy has a compulsory one week excess. If Samantha breaks her
ankle in a riding accident and is disabled for six weeks, how much benefit, if any, will she receive?
A. None.
B. £200
C. £1,000
D. £1,200
27. In which part of the UK will insurers NOT cover damage caused by a riot?
A. England.
B. Northern Ireland.
C. Scotland.
D. Wales.
28. Under a contract of insurance, good faith is an example of
A. an arbitration condition.
B. an express warranty.
C. an implied condition.
D. a written representation.
29. Why is there a contractual liability exclusion under all general insurance policies?
A. Contractual liability extends an insured’s position beyond the common law position.
B. Contractual liability should be specifically insured elsewhere.
C. The exclusion limits an insurer’s liability to a proportion of any claim with any other insurer that
also excludes the risk.
D. The exclusion provides an insurer with recovery rights against its own insured.
30. In which part of a standard household insurance policy will details of the risk address be found?
A. The operative clause.
B. The policy conditions.
C. The policy schedule.
D. The recital clause.
IF3 Examination Guide 2020 14Examination Guide
31. Ahmed has a private motor insurance policy that is due for renewal in two months’ time. He sold
his car three weeks ago, but forgot to notify his insurer. If he telephones his insurer today, when
will the cancellation take effect?
A. From the date of the sale of the car.
B. From the time Ahmed telephones the insurer.
C. From the time that Ahmed receives payment from the purchaser of the vehicle.
D. From the date the current certificate of motor insurance expires.
32. What is an insurer’s obligation, if any, with regard to the issue of renewal notices?
A. An insurer is not legally required to issue renewal notices.
B. An insurer has a statutory duty to issue renewal notices for all insurance policies.
C. An insurer has a statutory duty to issue renewal notices only for compulsory insurance.
D. An insurer must issue renewal notices within one month of the renewal date.
33. Policy renewal is more cost-effective for an insurer than new insurance business because
A. discounts can be offered.
B. it can be conducted over the telephone.
C. premiums will always be increased annually.
D. there are no marketing costs involved.
34. An amateur football team wants to insure its players in case they are injured in one of its football
matches. What type of insurance policy will be required?
A. An employers’ liability insurance policy.
B. A group income protection insurance policy.
C. A group personal accident insurance policy.
D. A public liability insurance policy.
35. What is the minimum level of insurance cover that is required to protect an insured’s car against
malicious damage?
A. Road Traffic Act only.
B. Third party only.
C. Third party, fire and theft.
D. Comprehensive.
36. From whom would an insurer specialising in extended warranty insurance obtain the majority of its
new business?
A. Independent financial advisers.
B. Insurance brokers.
C. Lloyd’s underwriters.
D. Retailers.
IF3 Examination Guide 2020 15Examination Guide
37. A standard all risks insurance policy covers all perils that are insurable under a standard fire and
special perils policy and
A. accidental damage.
B. earthquake.
C. malicious damage.
D. riot.
38. A farmer specifically wants cover for loss of income should a fire destroy his grain store. Which
insurance policy would meet his needs?
A. A business interruption insurance policy.
B. A creditor insurance policy.
C. A fidelity guarantee insurance policy.
D. A money insurance policy.
39. Steve is a solicitor who could be sued for damages if he gives wrongful advice to a client. What
compulsory insurance must he have in order to protect himself against such claims?
A. Fidelity guarantee insurance.
B. Legal expenses insurance.
C. Professional indemnity insurance.
D. Public liability insurance.
40. The main function of an uninsured loss recovery service is to recover
A. motor vehicles that have been involved in an accident on behalf of the insured.
B. uninsured losses from a third party on behalf of the insured.
C. uninsured losses from an insurer on behalf of another insurer.
D. unpaid insurance premiums on behalf of an insurer.
41. Identification, evaluation and control are the three stages involved in risk
A. eradication.
B. management.
C. premium.
D. transfer.
42. For which class of insurance is the premium calculation most influenced by the risk of an electrical
breakdown?
A. Business interruption insurance.
B. Commercial theft insurance.
C. Extended warranty insurance.
D. Property all risks insurance.
IF3 Examination Guide 2020 16Examination Guide
43. An insurer realises that a receipt, submitted in connection with a claim, has been tampered with by
the insured to increase the amount shown. In this situation the insurer is most likely to
A. pay the original amount and ignore the tampering by the insured.
B. report the matter to the Financial Conduct Authority.
C. take no action and pay the amount claimed.
D. void the insurance policy and refuse to make any payments.
44. What is the Claims and Underwriting Exchange?
A. A call centre that provides claim forms and proposal forms.
B. A committee through which insurers exchange claims and underwriting information.
C. A database that contains information on personal lines claims.
D. A register of stolen artefacts.
45. An insurer is handling a substantial fire claim. Who would be appointed to make initial enquiries
about the loss and then to ensure that an accurate claims settlement is achieved?
A. An insurance broker.
B. A loss adjuster.
C. A loss assessor.
D. A surveyor.
46. Under a household insurance policy, the insurer generally dissuades the insured from making a
claim for an item that does NOT exist by
A. asking for proof of purchase of the item.
B. insisting on photographic evidence of the item.
C. stipulating that a loss adjuster will always be appointed.
D. stipulating that a loss assessor will always be appointed.
47. How do fraudulent claims have an adverse affect on an insurer?
A. Fines can be imposed by the Financial Ombudsman Service if it has made insufficient effort to
combat fraud.
B. Its claims costs will rise, impacting on its premiums and making it less competitive.
C. It will be blacklisted by the Financial Conduct Authority.
D. It will be subject to time-consuming investigations by the Financial Action Task Force.
48. When considering a proposal for fire insurance, the two most important underwriting factors are
the
A. age and design of the building.
B. construction and use of the building.
C. geographical location and size of the building.
D. occupation and previous claims history of the proposer.
IF3 Examination Guide 2020 17Examination Guide
49. Carl is completing a proposal form for insurance for his laundrette. The proposal includes a
question requesting details of whether the laundrette could operate from another site in the event
of an insured peril occurring. To which type of insurance is the proposal form referring?
A. Business interruption insurance.
B. Extended warranty insurance.
C. Money insurance.
D. Professional indemnity insurance.
50. The Equality Act 2010 stipulates that insurers are only able to impose special underwriting terms or
decline an insurance risk when
A. agreed individually with the Financial Conduct Authority.
B. data or information provided by a reliable source justifies the action taken.
C. the insured has incurred a claim during the period of insurance as a direct result of a disability.
D. the previous insurer provided restricted cover to reflect a disability.
51. Apart from the destination, what is the most important underwriting factor when considering
annual travel insurance?
A. The cost of the anticipated travel.
B. Any pre-existing medical conditions.
C. The travel agency used.
D. The value of the personal items to be taken on the trip.
52. What is the principal consideration when underwriting employers’ liability insurance for a
company?
A. The company’s degree of contact with the public.
B. The number of employees working for the company.
C. The trade of the company.
D. The turnover of the company.
53. Other than the use of the building, what is the main underwriting consideration for glass insurance?
A. The construction of the building.
B. The geographical area.
C. The level of security in the building.
D. The previous claims history of the proposer.
54. An insurer calculates a claims loss ratio by dividing the
A. claims incurred by the premium received and converting the result to a percentage.
B. claims incurred by the sum insured and converting the result to a percentage.
C. premium received by the claims incurred and converting the result to a percentage.
D. sum insured by the claims incurred and converting the result to a percentage.
IF3 Examination Guide 2020 18Examination Guide
55. Patrick has an insurance policy with a renewal date of 1 July each year. In 2018, the renewal
premium was £1,500 and in 2019 the renewal premium was £2,000. What was the total premium
paid during the 2019 underwriting year?
A. £1,500
B. £1,750
C. £2,000
D. £3,500
56. The period of cover for a single insurance policy from its inception through to its first renewal date
is called
A. an accounting year.
B. a calendar year.
C. a policy year.
D. an underwriting year.
57. A ship travelling across the Atlantic Ocean suffers an explosion on board and sinks. In terms of
frequency and severity, how would the risk be described?
A. High frequency, high severity.
B. High frequency, low severity.
C. Low frequency, high severity.
D. Low frequency, low severity.
58. If an insurance policy has a loss ratio of 103%, how much will be paid out in claims by the insurer for
every £100 of premium received?
A. £3
B. £30
C. £97
D. £103
59. What information will an underwriter usually require to assess profitability for a specific class of
business?
A. The geographical spread of claims.
B. The loss ratio of his portfolio.
C. The number of claims.
D. The investment income accounts.
60. Before quoting for a motor insurance policy, the underwriter is most likely to research the database
of the
A. Association of British Insurers.
B. Financial Conduct Authority.
C. MIAFTR2.
D. Motor Insurers’ Bureau.
IF3 Examination Guide 2020 19Examination Guide
61. Why is it important that an insurer accurately reserves for claims?
A. To ensure that future premiums are paid.
B. To ensure that future claims costs are met by the premiums.
C. To prevent fraudulent claims.
D. To reduce the number of claims.
62. What document would an underwriter use to obtain key information during the underwriting
process?
A. A certificate of insurance.
B. A cover note.
C. A policy document.
D. A proposal form.
63. An insurer may examine a company’s financial accounts when considering a proposal for which
class of business?
A. Business interruption insurance.
B. Fire insurance.
C. Medical expenses insurance.
D. Motor fleet insurance.
64. Lapse flow analysis relates to
A. business that has been lost.
B. declined proposals.
C. policies renewed after the renewal date.
D. proposals currently being processed.
65. An insurer has a return on capital employed of 10%. What does this mean?
A. Claims are 10% of the capital employed.
B. Investment income is 10% of the capital employed.
C. Premiums are 10% of the capital employed.
D. Profit is 10% of the capital employed.
66. With regard to the risk premium, to what does frequency refer?
A. The average time between claims.
B. The number of claims which are forecast.
C. The number of instalments in which the premium is paid.
D. The number of policies written.
IF3 Examination Guide 2020 20Examination Guide
67. An insurer has a premium income of £250,000 and claims totalling £100,000. If the capital
employed by the insurer is £1,000,000, what is the return on capital employed?
A. 10%
B. 15%
C. 25%
D. 40%
68. Under which main class of insurance is the risk premium most likely to be adjusted to allow for the
cost of latent claims?
A. Business interruption insurance.
B. Fire insurance.
C. Health insurance.
D. Liability insurance.
69. An insurer expects premium income of £1,000,000 for a class of insurance. Future claims are
expected to be £250,000 with an incurred but not reported (IBNR) of 10%. Based on this
information, what is the risk premium?
A. £275,000
B. £350,000
C. £725,000
D. £1,000,000
70. If an insurer wishes to protect its insurance portfolio from the effects of a large claim, the insurer
should
A. aggregate.
B. reinsure.
C. retrocede.
D. self-insure.
71. A large factory complex is insured against fire with a total sum insured of £1,000,000. The complex
comprises of factory A and factory B, which are half a mile apart. Factory A is insured for £600,000
and factory B is insured for £400,000. In percentage terms, what is the insurer’s estimated
maximum loss for any one fire?
A. 40%
B. 50%
C. 60%
D. 100%
IF3 Examination Guide 2020 21Examination Guide
72. In the event of an increased capacity for underwriting risks, the price of insurance would be
expected to
A. fall.
B. remain the same.
C. fluctuate.
D. rise.
73. If an insurer’s maximum retention is based on the estimated maximum loss of a risk, and if a risk is
valued at £500,000 with an estimated maximum loss of 60%, what amount of the risk would the
insurer be able to retain?
A. £100,000
B. £300,000
C. £500,000
D. £800,000
74. What is the earliest stage that an insurer can claim under a reinsurance contract?
A. After dealing with all third party liability claims.
B. Following payments made for losses.
C. Once a loss adjuster has been appointed.
D. Prior to payments made for losses.
75. An insurer has arranged reinsurance on a risk. This means that the insurer has
A. issued an excess of loss.
B. reinstated a lapsed policy.
C. renewed a policy.
D. transferred part of its risk exposure.
IF3 Examination Guide 2020 22Examination Guide
Specimen Examination Answers and Learning Outcomes Covered
Learning Learning Learning
Question Answer Question Answer Question Answer
Outcome Outcome Outcome
Learning Outcome 1 Learning Outcome 4 Learning Outcome 9
1 B 1.3 31 B 4.2 54 A 9.4
2 D 1.5 32 A 4.1 55 B 9.5
3 D 1.1 33 D 4.1 56 C 9.5
4 C 1.4 3 Questions 57 C 9.3
5 A 1.4 58 D 9.4
6 B 1.2 Learning Outcome 5 59 B 9.2
6 Questions 34 C 5.1 60 C 9.1
35 D 5.1 61 B 9.2
Learning Outcome 2 36 D 5.1 62 D 9.1
7 B 2.4 3 Questions 63 A 9.1
8 A 2.2 64 A 9.1
9 B 2.3 Learning Outcome 6 11 Questions
10 A 2.1 37 A 6.1
11 B 2.8 38 A 6.1 Learning Outcome 10
12 C 2.6 39 C 6.1 65 D 10.2
13 D 2.5 3 Questions 66 B 10.1
14 C 2.1 67 B 10.2
15 D 2.2 Learning Outcome 7 68 D 10.1
16 C 2.3 40 B 7.1 69 A 10.1
17 A 2.4 41 B 7.1 5 Questions
18 A 2.7 2 Questions
19 C 2.4 Learning Outcome 11
13 Questions Learning Outcome 8 70 B 11.3
42 C 8.5 71 C 11.2
Learning Outcome 3 43 D 8.8 72 A 11.1
20 B 3.1 44 C 8.7 73 B 11.1
21 C 3.2 45 B 8.6 74 B 11.3
22 B 3.4 46 A 8.6 75 D 11.3
23 D 3.3 47 B 8.8 6 Questions
24 D 3.2 48 B 8.2
25 D 3.2 49 A 8.3
26 C 3.3 50 B 8.9
27 B 3.2 51 B 8.1
28 C 3.4 52 C 8.4
29 A 3.2 53 B 8.2
30 C 3.1 12 Questions
11 Questions
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